CMQ Top 50 Strategy (TOP)
Picking the best coins to buy and sell at the right time is the best way to underperform the market. So why not pick a time tested top performing strategy?
Table of Contents
TOP has been designed to deliver superior risk adjusted returns. The tracker can be bought and sold as a Coin Set directly on partner platforms insuring timely reconstitution and rebalancing.
Token Selection Criteria
As part of the token inclusion assessment, CMQ considers a wide range of characteristics :
- The coin or token must be available for trading on reputable exchanges* with sufficient liquidity
- The coin or token must not be considered a stablecoin
- None of the following will be included in the index:
- Wrapped tokens,
- Tokenized derivatives,
- Synthetic assets,
- Tokens that are tied to physical assets,
- Tokens that represent claims on other tokens.
- It must be possible to reasonably assess the token’s circulating supply
- The coin or token must have been launched and traded for at least 90 days before being able to qualify for tracker inclusion
The performance value of the strategy is calculated to reflect the price changes of all underlying assets minus trading fees over time.
- Weight : is based on the proprietary market capitalization metrics of individual assets as a share of the total capitalization of the tracker
- Price : is the market price of the coin or token in USD as calculated by the selected trading venues as a reference source
The tracker is maintained on a Quarterly basis in two phases :
I. Determination Phase
The Determination Phase takes place the day prior to the reconstitution phase. It is the phase when the changes needed for the next reconstitution are determined.
- Proprietary market capitalization metrics for all candidate tokens
- Rank all candidate tokens by market capitalization and select the top 50
- Additions and deletions: The tokens being added and deleted from the index calculation are determined during this phase
- Weighting : TOP is an equal weight tracker. That is that all constituents must have the same weight at reconstitution.
II. Reconstitution Phase
At the end of the Determination Phase, the index composition will change to the new constituents and weights. Components will be added or removed, and weights adjusted. To avoid front-running, the outcome is published after the reconstitution is effective.
The Data Science
At CMQ we’ve looked at many factors :
- the number of constituents
- the rebalancing frequency
- trading fees
- weighting strategies
- … and so on
Talking of fees factored in at just 0,1% here is the difference in performance, illustrating how important fees are when evaluating performance :
First we devised a system to neutralise the time variant, running for each combination of factors the same strategy starting every 4 days and looking at its performance of 1 month, 3 months and 6 months (true hodlers). Each strategy for each date would rank 1st, 2nd, 3d,… receiving more points the lower it ranked. Overall the strategy with the lowest score would be the winner.
The following table lists a sample of 10 strategies that scored well and the following graph plots the 5 of them for readability reasons :
We then proceeded to look at their analytics starting with their mean alpha.
Then, by standard deviation of their alpha :
We then looked at a combination of those metrics that we called the Alpha Ratio using the following formula : (alpha mean / alpha standard deviation = the “alpha_ratio”) :
Using the same logic we looked at the beta mean (the lower the better) :
and ranked themby beta standard deviation (the lower beta the better) :
We then looked at a combination of the beta metrics that we called the Beta Ratio using the following formula : (beta mean / beta standard deviation = the “beta_ratio”), again the lower beta the better :
For performance, as quants, we look at sharpe mean (the higher the better) :
followed by sharpe standard deviation (the lower the better) :
followed by the sharpe ratio (the higher the better) :
Strategy id117 came out on top but in order to select the best strategy we had to take additional factors into account.
- The lower the number of assets the better the accessibility to investors and tradability (minimum trades require 10 USD per coin on most exchanges).
- The lower the frequency of rebalancing the higher the efficiency.
For the latter factors, we looked at 15 reputable exchanges and obtained the following results :
Id112, a close relative to Id117, hence became our Top Strategy (based on the number of assets, frequency of reconstitution and rebalancing, weighting and trading fees). This strategy is designed specifically for cryptocurrency investors, traders, funds, DeFi users, and institutions wishing to maximise their risk return trade off, beating consistently over time both Bitcoin and the overall Crypto Market since 2020.
The below chart compares the individual performance of our Top 50 Strategy and Bitcoin.